Buying real estate is usually the biggest purchase of anyone’s life. When you are looking to buy a new home, it is exciting to think about it, but it can be a little daunting too. Not too many years ago, a traditional real estate agent was the only option for most people; however, things are a little different today.
Now, you have multiple choices when it comes to buying a home. The traditional mortgage is not the only financial solution either, with several other approaches that can make funding your home more practical, depending on your situation. But which one is the right choice for you?
Traditional Buyer Agent
The most common option for purchasing real estate remains the traditional buyer agent or realtor. Here, the agent will find suitable real estate for you, organize home showings, and more. They can also guide you through negotiations, helping you to obtain the best price and terms.
This approach remains so popular because buying a home is a complex process and a traditional real estate agent is an expert working to support you through it. With their help, it is possible to negotiate a really good price on a property, but there are downsides, too. A traditional buyer agent will have listings from other agents in their office or through the Multiple Listing Service (MLS), you may miss out on some properties because they are not offered through these traditional channels. On the other hand, the combination of MLS and local agent listings does represent a wide choice of properties to choose from.
A traditional real estate agent also works on commission, so there are extra costs compared to some other options. In some situations, many make commissions negotiable or offer reduced commissions, so look out for bargain services. However, the best buyer agents take the hassle out of finding, viewing and buying a property. For many of us, their commission is a small price to pay for that.
By Owner
The next type of sale is by purchasing directly from the owner. Unlike buyers agents, you are on your own here, dealing with the owners yourself. This approach has become more popular thanks to the ability to sell using internet-based sites, allowing an owner to reach out to buyers more easily.
There are advantages to buying directly from the current owner. You can often get a better picture of the ownership experience because the seller knows the property. By cutting out third-party commissions, real estate property sold this way may be available at below-average market price and prices are negotiated between just the buyer and seller.
However, the downside is that, unlike with buyers’ agents, you don’t have expert help to make the right decisions. Obviously, in this situation, there is also less choice in terms of available property to chose from. However, owner sales are becoming more popular, so it may be worth taking a look at a few properties in your area. If you do go this route, with essentials such as contract writing, having experienced legal assistance is more important than ever when dealing with owner-sellers. Some real estate agents will assist you in purchasing from an owner.
Flat Fee
Some see the flat fee approach to buying real estate as the best of both worlds. You get all the advantages of buyer agents, with their access to multiple properties for home viewings and expert guidance throughout the purchase process. But by asking for a flat fee instead of a percentage-based commission, you also have cost controls and less incentive to push for more expensive properties.
As with a traditional real estate agent, there are great flat fee buyer agents, but also some that can disappoint you with their service. Always research any agent before taking them on, and look for online reviews and client experiences to get a picture of what to expect.
Auction
We all know how auctions work, an item is put up for sale, and potential buyers bid on it until we reach the highest bid anyone is willing to make. That is the price paid for the property. The most attractive thing about auctions when looking to buy real estate is that they have the potential to provide bargains. If there was one approach to buying a home that could get you the lowest possible price, it would typically be an auction.
However, there are some things to remember. An auction doesn’t always mean cheap, or a bargain of any kind. It is very easy to get caught up in the bidding process, especially if there are several people bidding on the same property. That can lead to paying over-market price before you realize it, and instead of a bargain, you end up with an expensive property. If you do try an auction, plan ahead. Before bidding on any property, decide on a maximum price, and if the bidding goes over, stay disciplined and walk away.
When dealing with auctions, you also need to have everything in place to make the purchase. Some auctions require an immediate cash sale, so are not an option for those financing a purchase. For auctions that allow financed sales, having preapproval for a mortgage is a must as there will usually be time deadlines on completing the purchase. As with buying direct from an owner, you are very much on your own without expert help when taking the auction route. But if you have an eye for a bargain and can be disciplined when bidding, you may save some money buying real estate at auction.
Lease-Purchase
You might sometimes see these called rent-to-own purchases, and this is a real estate transaction between a landlord and a renter. If you rent somewhere that you love but want to own your own home, this can be a great option for everyone.
An agreement is reached for the renter to purchase the property from the landlord at a later date, and an option fee is paid to secure exclusive rights for that purchase. You live in the property and pay rent as normal until the agreed point, when you purchase directly from the landlord.
It’s a great way to build some equity before you go through with a purchase, giving you time to save for the mortgage deposit and so on while you live in the property. There are disadvantages, of course, you pay more in the long run because you are paying rent for a specific period. That money does not go towards the property purchase in the way paying a mortgage would. Any direct owner purchase may bring the same kind of downsides, including a lack of expert guidance. However, if you are already renting the property, this is an excellent way to transition to ownership.
Owner Finance
The final option when buying real estate is owner finance. This is often called seller finance and works somewhat differently from a mortgage. No lump sum is passed between the buyer and seller; instead, the seller extends a line of credit to the buyer for the sale amount minus the down payment.
The amount borrowed, interest rate applied, repayment schedule and terms (including non-payment consequences) are laid out in a mortgage note. The seller creates it, the buyer signs it. The buyer then follows the repayment schedule until the line of credit is paid off. In many cases, the owner will keep the title of the property until the loan is paid in full.
This can be an excellent option for those struggling to get a mortgage from traditional lenders, and it will almost certainly be cheaper than other finance options. However, the consequences of non-payment are usually severe, as the owner is taking all the risks, including immediate repossession.
Conclusion
Buying a home can take many forms, but whether you are using buyers’ agents or any other approach, it is important to fully understand the options you are taking, downsides as well as advantages, and choose the one that fits your needs the best.